One concept we’ve went over in class recently while studying
the Heckscher-Ohlin Model and was touched on by Drew Jacobi in his Free Trade post was the concept of “winners
and losers.” I feel like the concept needs to be built upon a little bit more
because the country that is considered the “loser” is not always losing
necessarily. The Heckscher Ohlin model states that both countries total outputs
go up. Just one countries output goes up by a higher level than the others;
creating the “winners and losers” scenario.
The term “distributive effects” refers to the distribution
of income gains, losses, or both across individuals in the economy.
Distributive effects are the explanation for exactly why some countries lose and
some countries win from moving from autarky to free trade. In the Heckscher-Ohlin
Model, one country will always be capital abundant and export capital intensive
goods whereas the other country will be labor abundant and export labor
intensive goods. Both countries will experience a redistribution of income when
moving from autarky to free trade. Some individuals will gain from trading
goods, while others will lose. The individuals
are where the loss is experienced as Drew explains with the example of the
American work force losing.
Is free trade necessarily bad though because one country has
a comparative advantage and causes the “winners and losers” scenario? I think
not! I think free trade should be supported because the absolute level of
output enjoyed by both the "winner" and "loser" will
increase. The only difference is the “winner” will gain more than the “loser. “
Both countries will in the end gain more than they had before in an absolute
level.
http://2012books.lardbucket.org/books/policy-and-theory-of-international-trade/s08-12-the-distributive-effects-of-fr.html
http://2012books.lardbucket.org/books/policy-and-theory-of-international-trade/s08-12-the-distributive-effects-of-fr.html
Agreed Cole. I think this creates less of a "winners and losers" scenario and more of a "winning-a-little" and "winning-a-lot". Increased Output is never a bad thing, is it? It is simply a reallocation which is considered a loss. While that reallocation might not be swift and painless in the long run I believe that there are great advantages. This can be proven, I suppose, by the continued international trade by most of the world!
ReplyDeleteI also agree with this post. The Ricardian model showed us that nearly everyone in both foreign and home countries were better off. This is somewhat similar to the Hecksher-Ohlin model. What I mean by this is the idea that prices of goods move in favor for both countries. The exported goods rise in price just as the the imported goods fall in price. However, some wages may fall such as the French capital owners in the example in this article making them "losers." However, the change in autarky prices to world prices now allows each country to consume away from their PPFs which make both countries winners in my eyes.
ReplyDeleteYour post correlates directly with what we just tested over. When the ppf is drawn under autarky and subsequently under free trade, we saw that there existed a new indifference curve for both countries that offered a higher level of satisfaction. Surely free trade is no evil at all, rather a necessary good!
ReplyDeleteI agree with your post,although in free trade,some people may suffer from benefit loss,such as the worker in import sector,the country gain as a whole after all.Just as the other comments mentioned,we can see that from the Ricardian model,countries open to trade give them a chance to consume over their PPF so that they can reach a higher indifference curve.In my opinion,countries should open to free trade and set up a subsidies policy for the import sector workers therefore improve the welfare of the whole countries.
ReplyDeleteI agree with your post. In general, moving from autarky to free trade will benefit the workers in exporting countries, and the workers in importing countries lose. However, in term of the welfare of the whole countries, both exporting and importing coutries will gain in free trade. Fot that reason, the unions between allied countries are appeared more and more. Then they have more policies like reducing tariffs or workers' compensation to encourage trading in unions.
ReplyDeleteI agree with your position.
ReplyDeleteBecause as we learned all winner and loser are increase. free trade helped to get weak products for other countries even there is some loose factor.